Free cash flow is a useful measure of how much money a company generates for its shareholders in a given year. In 2017, US companies generated far more cash from operations than they spent on capital investments, allowing them to return the extra cash to people who own shares of the companies. Among non-financial companies in the S&P 500, the median free cash flow for 2017 was $816 million. In the same one-year period, operations of the top ten non-financial companies, by free cash flow, generated $221 billion in cash for shareholders, after these companies had finished investing in plants, property, and equipment.

In determining how much cash can be returned to the owners of a company’s stock in a given year, free cash flow offers insights that other measures, like net income (the typical earnings reported by a company) cannot. Net income is easier for companies to game (for tax purposes, for example) because net income allows companies to spread out expenditures on capital investments over a multi-year period. Free cash flow is harder to fake, as it is simply the cash generated through operations in a given year minus the expenditures on capital — plants, property, and equipment — made in the same year.

The distribution of free cash flow in 2017, for non-financial companies in the S&P 500, shows that the vast majority, more than 87 percent, had cash left over after capital expenditures. The first quartile (the level at which one quarter of companies performed worse) free cash flow in 2017 was $338 million in 2017. The third quartile free cash flow in 2017 was $1.8 billion.